Assignment Sample on Finance Management

Introduction

The assignment would deal with the understanding of the budgetary process. The practical implication of the budgeting has been explained with the case study of London Docks Café. The report and suggestive measures on the basis of the report is explained later. The sustainable way of making profit is also being given.

a. Meaning of Budgeting

Budgeting is being defined as the road map of showing how the money would be spent. The plan for the same is called as budget. It helps in pre-planning the resources available to the company as against to achieve the goals of the company. It is the estimation of the expenses and income of the specified future period so as to help the company in doing the proper planning. There are various types of budgeting method which is being widely used by the company. It helps in utilising the resources in such a way that it helps in attaining the business objective of the company in a better way.

Objectives of Budgeting

The objectives of budgeting have been given below as;

Revenue & Expense estimation – The budgeting helps in the estimation of the revenue and expenses of the company for the future period considering the previous financials of the company and the upcoming situation.
Variance Analysis – The budget would help the company in setting up the targets and hence the actual figures would be then compared with that of those budgeted and the interpretation would help the company in taking suggestive measures for the improvement.
Plan of action – The budget would help the company in setting the targets and hence helps the different level of management in planning accordingly.
Acts as a guide – The budget guides the management in altering the decision if there is any change in the conditions.
Helps in decision making – The budget has been given and hence all levels of management help in various decisions making in different steps. (Vinten, 2005)

When the robust budgetary process has been applied to London Docks Café then it would help the company in achieving the objectives of the company in a better way. The budgeting would help in maximising profit and hence achieving the overall objectives of the company. The decision for various cost control would be taken and helps in utilising the available resources in the better way. Hence, the application of this process would help in visualising the goals and helps in setting up the roadmap to achieve the same.

b. Statement showing Revenue & Spending Variance for the month ended 31^st December ‘20

Formulae to be used (Cave, 1960)

Revenue Variance = Price Variance + Volume Variance

Price variance= Actual price for Actual Quantity – Standard Price for Actual Quantity

Volume Variance = Standard Price for Standard Quantity – Standard Price for Actual Quantity

Spending Variance =Standard Rate for Actual Quantity – Actual rate for Actual Quantity

Given Data

Particulars	Planning	Actual
Budgeted Meals	20000	18000
Revenue Rate (£5)	100000	90000
Expenses
Raw Material (£2.5)	50000	45000
Wages & Salary (£5500+0.25)	10500	10000
Utilities (£2500 + £0.05)	3500	3400
Facility rent	5000	5500
Insurance	2800	3200
Fuel	2500	2800
Net Operating Income	25700	20100

Working

Revenue Variance

Price Variance =£5*18000 meals – £5*18000 meals = Nil

Volume Variance = £5*18000 meals – £5*20000 meals = – £ 10000 = £ 10000 (A)

Revenue Variance = £ 10000 (A)

Spending Variance:

Raw Material Variance =£2.5*18000 meals – £2.5*18000 meals = NIL
Wages & Salaries Variance = £5500*£0.25*18000 meals – £10000 = NIL

Utilities Variance =£2500*£0.05*18000 meals – £3400 = NIL

Fixed Overhead Variance = (£5000+£2800+£2500) – (£5500+£3200+£2800)

= £10300 – £11500

= – £1200

= £ 1200 (A)

Fixed Overhead Variance includes factory rent, insurance and fuel.

Spending variance = £ 1200 (A)

c. Based on the variances report above in (b), management should take care of the area or of activity as

The above report (b) is clearly showing that the company is giving unfavourable result of revenue variance. It is mainly because of the unfavourable sales of volume of meals to the citizens and tourist by the café. The revenue variance for the given month may be due to poor quality of the meals. Various control measures should be taken to improve the sales of meals such as increasing the supply of meals to the far off area also. Proper advertisement needs to be done so as to achieve reach more and more customers. Even the café can start registering themselves online and tie up with different online platform is to be done so as to reach the targeted sales.

The spending variance is giving unfavourable result which is mainly due to the procurement of increase in fixed overhead cost. The above figure shows that the procurement of raw material has been done at a price which is being given in budgets and even the quantity which is being utilised for the production of 18000 meals is as budgeted. The labour is also doing work efficiently and is being appointed at a budgeted rate. The other utilities which is semi fixed is being acquired at the same rate as decided and given in the budget. The other fixed cost such as factory rent, insurance and fuel has been acquired at much higher cost by the café as compared to the budgeted. The concerned department should take reasonable steps to get the other resources so that the cost for it can be reduced. The fuel expenses have been increased due to the in-efficient labour so proper direction for the same is to be given.

The suitable measures would be taken to remove the adverse effects of the revenue variances and spending variances then the overall profit would be maximised which helps in achieving the overall objective of the company. (Rasmussen, 2003)

d. Meaning of Profitability & Sustainability

Every business enterprise has a goal of sustaining in the long term and has an overall objective of maximising the profits. Sustainable profitability can be achieved only when the company provides the goods or services which is profitable as well does not harm the environment which means environmental friendly. A business enterprise will stay for a longer period when the management makes such sustainable policy so as to make the profits without doing injustice to people at large. It is a challenging task to make profits with adopting sustainable policy. Profitability is a short term goal while now-a-days most of the enterprise understands their responsibility towards the environment. It is commonly seen that the company has a motive of just earning profits without even thinking of how the profits would be achieved. Sustainability is a concept having long term view and an integrative approach which creates balance between social, economic and other things of the business. Now, the company is responsible to the environment and people at large. The companies are not setting the short term goals of just achieving the profits. In the era of increasing pollution of water, air, noise, etc., it is the duty of the business to report on and make balance of social and economic effects of business to the environment. (Lucey, 2009)

Measures to be taken by London Docks Café to attain both the mandates

The successful companies have been defined as those companies which focus even on the sustainable policy as well. London Docks Café is in the food industry and hence lots of wastage is being produced on a daily basis. So, if the company understands its responsibility towards the environment and public at large, it would lead to less pollution. The wastage should be degraded so as to less pollute the water. The priority should be made of doing the business and making the sustainable profits. The system is to be made for the leftover food at the end of the day to be given to needy. When the café starts doing the business in sustainable way, the people at large would build the trust in the company. Organic raw material should be used for making the meals so as to help the people at large. It may be costlier to grab the raw material but it would help in maintaining the quality and help in the long run. Customer satisfaction would in turn increase the profits in the long run. It is the environmental obligation of any food industry to reduce the wastage of foods or water, reduce the emission of gases and caring for the people in the society. The food which is being provided by the café should be full of nutrients and should not compromise with the quality of the raw material used as well as serving the fresh food. The consumer is mainly concerned about the quality of meals being provided to them so it is always better for the café to take the above two mandates seriously and works upon it. (El-Halwagi, 2017)

Conclusion

The above assignment helps in understanding the importance of budgeting process and how it helped in taking measures for the improvement by variance analysis.